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India Equity Research Reports, IPO and Stock News
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We were joined by Mr Aditya Malkani, Executive Director and Mr K N
Subramanian, CFO who shared the outlook on the industry and company.
Key highlights
n Pegged the market size at Rs35-40 bn, growing at 15-20% CAGR in co-relation to
manufacturing indices and steel volume growth. The organized industry market is
Rs20 bn with market share of 50%.
n Ador has market share of 17%, whereas Esab India is 32%. Ador has lost 600 bps
market share in last 3-4 years to competition.
n Industry is undergoing gradual shift from manual welding to automatic welding, hence
growth is higher and stronger in wires (25% yoy) over electrodes.
n Implementation of GST would be favourable for the Welding industry - this would
reduce the price gap between the organised and unorganised players. Thereby, shifting
the industry towards organised players, yielding strong growth in the process.
n Ador expects welding industry to grow in correlation to manufacturing growth and steel
volume growth. Since, both these indices remain under pressure; welding industry
growth could witness some moderation. Yet remain confident for 15% growth in FY12E.
n Ador is redesigning its distribution and marketing strategies. It is eyeing to regain the
lost market share in progressive manner, consequently grow faster then the industry
in ensuing years.
n Ador generates 8% of revenues through exports. The growth triggers remain intact,
with no red flag in the export business.
n There are Ebidta margin pressures in industry (1) rising material costs and (2)
competitive activity - especially from international players like Lincoln and Boller.
Consequently, there are margin pressures for Ador driven by external environment.
n Capacity utilization levels in consumables are 40% and wires are 80% for FY11. Ador
would spend Rs220 mn in Capex in FY12E, largely to augment capacity in wires and
selectively in consumables. The capex would be met through internal accruals.
n Announced dividend of Rs6/Share in FY11 and dividend pay-out of 30%. Anticipate no
change in dividend pay-out in ensuing years.
n Rules out consolidation/merger of Ador Welding and Ador Fontech - former is in welding
products and latter is in reclamation products. Since, distribution network is completely
different for the two product lines.
Valuations
AWL is trading at 9.0X FY11 earnings of Rs18.9 per share - and a 35% discount to Esab
(which is trading at 13.8X CY10 earnings). Considering the growth opportunities, robust
cash generation in business and high dividend payout - above valuations are attractive.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr Aditya Malkani, Executive Director and Mr K N
Subramanian, CFO who shared the outlook on the industry and company.
Key highlights
n Pegged the market size at Rs35-40 bn, growing at 15-20% CAGR in co-relation to
manufacturing indices and steel volume growth. The organized industry market is
Rs20 bn with market share of 50%.
n Ador has market share of 17%, whereas Esab India is 32%. Ador has lost 600 bps
market share in last 3-4 years to competition.
n Industry is undergoing gradual shift from manual welding to automatic welding, hence
growth is higher and stronger in wires (25% yoy) over electrodes.
n Implementation of GST would be favourable for the Welding industry - this would
reduce the price gap between the organised and unorganised players. Thereby, shifting
the industry towards organised players, yielding strong growth in the process.
n Ador expects welding industry to grow in correlation to manufacturing growth and steel
volume growth. Since, both these indices remain under pressure; welding industry
growth could witness some moderation. Yet remain confident for 15% growth in FY12E.
n Ador is redesigning its distribution and marketing strategies. It is eyeing to regain the
lost market share in progressive manner, consequently grow faster then the industry
in ensuing years.
n Ador generates 8% of revenues through exports. The growth triggers remain intact,
with no red flag in the export business.
n There are Ebidta margin pressures in industry (1) rising material costs and (2)
competitive activity - especially from international players like Lincoln and Boller.
Consequently, there are margin pressures for Ador driven by external environment.
n Capacity utilization levels in consumables are 40% and wires are 80% for FY11. Ador
would spend Rs220 mn in Capex in FY12E, largely to augment capacity in wires and
selectively in consumables. The capex would be met through internal accruals.
n Announced dividend of Rs6/Share in FY11 and dividend pay-out of 30%. Anticipate no
change in dividend pay-out in ensuing years.
n Rules out consolidation/merger of Ador Welding and Ador Fontech - former is in welding
products and latter is in reclamation products. Since, distribution network is completely
different for the two product lines.
Valuations
AWL is trading at 9.0X FY11 earnings of Rs18.9 per share - and a 35% discount to Esab
(which is trading at 13.8X CY10 earnings). Considering the growth opportunities, robust
cash generation in business and high dividend payout - above valuations are attractive.
thANK U SOOO MUCH FOR THIS REPORT
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